Commodity Exchanges – How to Trade Commodities

Commodities sell on the world stage, with more than a dozen major commodity exchanges now placed worldwide.

For example, the Chicago Board of Trade (CBOT, http://www.cbot.com), trades a vast amount of commodity types. Here traders will find everything from metal contracts: 100 oz Gold, 5,000 oz silver and newer 'mini' contracts for both, to corn, soybeans, wheat and oats. Mini's are contracts in which the amount covered by a standard contract are smaller than the traditional amount, meaning a lower initial investment is required and smaller price increments or 'ticks' are allowed.

Also offered by the CBOT are a variety of non-physical 'commodities' futures contracts. Government bonds futures contracts are traded: 30-year bonds, 10-year notes, 5-year swaps, and more. Similar to futures, a swap is the combination of a cash trade and a forward, used primarily for hedging. The CBOT also trades a number of indexes, such as the Dow AIG Index (a commodity index), and the Big Dow (an index on stocks).

For over a hundred years, the CME (Chicago Mercantile Exchange, http://www.cme.com) has also traded commodities. Reflecting its long history, the exchange trades live and feeder cattle, hogs, pork bellies and others. Also traded here are lumber, milk, butter and even fertilizer.

Also available through the CME are more esoteric products. The exchange offers an E-mini S&P 500 contract to trade the Standard & Poor's 500 Index on stocks. If the NASDAQ appeals, they offer the E-mini NASDAQ 100 that trades a futures contract on that popular index.

Even Eurodollar futures are traded here. But the most unusual contract has to be the Weather derivative - a futures contract that speculates on weather around the globe during different seasons.

One of the oldest exchanges in the US, the New York Mercantile Exchange, or NYMEX, (http://www.nymex.com/index.aspx) offers commodity and futures trading on a wide variety of petroleum and metals products, each with a distinct exchange abbreviation. Brent and mini-crude (CL, WS), Natural Gas (NG), Gasoline (HU), Heating Oil (HO, BH), and others.

Also offered here are Gold (GC), Silver (SI), Copper (HG) and Aluminum (AL). Note that the commodity abbreviations do not match the common chemical element abbreviations. Futures contracts are listed second and have their own abbreviation.

Also housed in New York, another major exchange is the NYBOT (New York Board of Trade). New York's original futures exchange, it offers contracts on cocoa, coffee, sugar, FCOJ (frozen concentrate of orange juice), cotton and other agricultural products. It also trades non-physical items, such as currency pairs, the U.S. Dollar Index, the famed NYSE Composite and more. The NYBOT offers live price info and will even feed a Blackberry device.

However the U.S. doesn’t have a monopoly on commodity and futures exchanges. One of the world's most active is in London: Liffe (http://www.liffe.com). Formerly known as the London Fox (London Futures and Options Exchange), it's now merged with euronext. The exchange trades cocoa, sugar, coffee, wheat, barley, potatoes and other agricultural products.

Close by is the historic London Metal Exchange (http://www.lme.co.uk), one of the oldest exchanges in precious metals trading. Copper, lead, aluminum, and several others are traded here. Plastics are even traded here.

Another major exchange can be found in Japan. The Central Japan Commodity Exchange (C-COM, http://www.c-com.or.jp), is based in Nagoya, Japan. Formed in 1996 when three major exchanges merged, commodities traded through this exchange range from eggs to gasoline and kerosene to ferrous scrap.

         

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